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The warning comes as consumers gear up for the busy Christmas shopping season and as the Metro Vancouver real estate market slows down, with both sales and average prices decreasing.

Despite repeated warnings from Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty about the perils of taking on too much debt, Canadians’ non-mortgage debt grew at its fastest rate in nearly two years during the three months leading up to September.

Nationally, consumer debt jumped 4.6 per cent in the third quarter of 2012, compared to a year ago, to an average of $26,768, credit reporting agency TransUnion’s latest quarterly analysis shows. The increases were the biggest since the fourth quarter of 2010.

In B.C., the average consumer debt is $38,837, the highest in the country and up 2.5 per cent quarter over quarter and 6.2 per cent year over year. The fourth quarter of the year — and Christmas shopping — typically brings an uptick of one to two per cent in growth in debt, said Thomas Higgins, TransUnion’s vice-president of analytics and decision services.

He’s worried this year’s Q4 numbers might show an increase in total consumer debt of seven or eight per cent.

“That would definitely be a concern,” Higgins said. “We’re not seeing the type of growth rate in income that we see in debt levels, so your debt-to-income ratio is going to get worse. We’re going overboard.”

Higgins also points out that in the past five years, debt loads have grown at four times the rate of inflation. The consumer price index is up nine per cent during that time, while consumer debt has jumped more than 37 per cent.

Jeffrey Schwartz, executive director at Consolidated Credit Counseling Services of Canada, said he’s encouraged that most of the debt growth is on car loans and instalment loans, rather than higher-interest lines of credit or credit cards. But he cautioned that could change as Christmas shopping peaks.

“I think if the trend of lines of credit and credit card debt turns around in the last quarter and starts to increase, then we could be in trouble,” Schwartz said. “With debt-to-income levels at 163 per cent, we’re setting ourselves up for disaster.”

Meanwhile, Metro Vancouver’s housing prices may drop an average of six per cent next year, according to Re/Max’s 2013 Housing Market Outlook.

“If the housing market is on the decline, (people) are not going to be able to use their houses as cash registers any more. They’re going to be in kind of a shock situation, unless they change their behaviour now,” Schwartz said. “Sometimes people need a shock to change. I think there are a number of people on that fringe, who if they did have a shock it could send them into a tailspin rather quickly.”

Schwartz said such a shock could be things like decreasing home values, a loss or reduction of income or rising interest rates.

Higgins said the increase is quite a contrast to relatively stagnant debt growth in the prior three quarters.

“Debt’s outpacing us and continues to outpace us, so at some point in time there’s going to be a reconciliation,” Higgins said. “Hopefully it’s not drastic and hopefully it doesn’t hit everybody, but there’s going to be a correction somehow along the way.”

Higgins said he believes the reason consumers continue to ramp up debt loads — aside from the protracted period of record low interest rates — is that scary economic headlines from around the world have started to dissipate, with less bad news coming out of Europe, the U.S. posting growth and Canada reporting a healthy jobs market.

“Unless there are imminent concerns put in front of us, or we get a taste of potential pain, such as a jump in interest rates or job losses in a sector or something noticeable, we tend to put the bad stuff away and hide it in the closet and hope it stays there,” Higgins said. “The good news is that when we look at the delinquency rates, Canadians are still managing the debt load, but the concern is that if something does happen, we’ve got less and less room to weather the storm.”

Although the Re/Max report calls for a drop in average prices of six per cent in the near term, it says the overall economic picture for Metro Vancouver is healthy and that the real estate market will gradually recover through 2013. The report calls for a one-per-cent increase in average house prices and growth in the number of sales by the end of 2013.

“Despite the short-term pain, the Greater Vancouver housing market is ideally positioned for the future,” the report says.“A combination of factors — including historically low interest rates and resolution of the harmonized sales tax issue — are expected to play a positive role moving forward.”

In October, the dollar volume of homes sold in B.C. dropped 14.6 per cent from a year ago, the number of sales dropped 10 per cent and the average price — $508,292 — was down 5.1 per cent, the B.C. Real Estate Association reported Wednesday.

Higgins said the real estate slowdown has been gentle rather than abrupt, and he doesn’t expect prices to drop suddenly or significantly. He said Canada’s situation is very different from the United States before the crash because Canada has very few people in a negative position on their mortgages and people do not have mortgages with sudden, large interest rate increases.

Average credit card debt — which carries the highest interest costs — was down one per cent year-over-year, though it was up half a per cent from the previous quarter and now hovers at an average of $3,573, TransUnion found.

Borrowing on lines of credit fell 0.2 per cent year-over year, but grew nearly one per cent since the second quarter of the year and sits at an average of $34,050.

The debt numbers show an 11-per-cent uptick year-over-year in auto loans to an average of $19,228 as consumers are once again shopping for cars, a big ticket purchase largely put aside during the doldrums of the recession.

“During the recession people held off on buying the new car, they refinanced the lease or continued with what they had longer than they would have,” Higgins noted.

Instalment loans — bank loans with a regular payment schedule that are paid off over time — increased 2.28 per cent year-over-year and 1.58 per cent quarter-over-quarter.

Perhaps the most encouraging news in the report was that delinquency levels — those who are late or default on a loan — continue to remain low across all categories.

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